Thursday, Jun 30 2011
• 10 a.m. (ET)

Greece and the European Debt Crisis

Greece’s parliament votes today on a bill to implement austerity measures. Yesterday, lawmakers approved a controversial package of tax hikes and spending cuts. The vote cleared the way for $ 17 billion dollars in international emergency loans. The aid is meant to stave off a possible default next month. Approval of the package came despite nationwide strikes and violent protests in Athens. The vote gave the prime minister a critical victory in the midst of crisis talks with E.U. leaders and the I.M.F. Diane talks with her guests about Greece’s latest efforts to avoid default and how its debt affects Europe’s stability and markets across the world.

Guests

Scheherazade Rehman
Professor of International Business/Finance and International Affairs at George Washington University

Ambassador Vassilis Kaskarelis
Greece's ambassador to the United States

Alan Beattie
International economy editor, The Financial Times

Antonio de Lecea
Minister for economic and financial affairs at the E.U. Delegation

Transcript

10:06:54

MS. DIANE REHMThanks for joining us. I'm Diane Rehm. Greece's parliament has voted in favor of an austerity plan. It contains a mix of tax hikes and spending cuts. Today, the parliament meets again to pass a companion bill to implement the measures. E.U. and I.M.F. leaders demanded the austerity plan in exchange for aid.

10:07:26

MS. DIANE REHMJoining me to discuss the debt crisis in Greece, what it means for the rest of Europe and for the world, the Greek ambassador to the United States, Vassilis Kaskarelis, George Washington University Prof. Scheherazade Rehman, Alan Beattie of the Financial Times and Antonio de Lecea. He's minister for Economic and Financial Affairs at the E.U. delegation. Do join us, 800-433-8850. Send us your email to drshow@wamu.org.

10:08:14

MS. DIANE REHMJoin us on Facebook or send us a tweet. We have just learned that the Greek parliament has passed the second austerity law, the last hurdle to receive the critical bailout funds. I'm going to start with you, Alan Beattie. Talk about the importance of what the Greek government did yesterday and now, today.

10:08:46

MR. ALAN BEATTIEWell, the immediate importance is that it keeps the show on the road, hopefully, for at least two or three months. They needed to pass this to unlock the next tranche, the next slice of lending both from the eurozone governments and from the International Monetary Fund, which is in the middle of a huge rescue loan for Greece.

10:09:02

MR. ALAN BEATTIEAnd there's a lot of concern, I think, particularly with the I.M.F., that Greece is having difficult implementing these austerity measures, and there's not a lot of political will in Greece. Now, those doubts will still remain, but at least they've shown they've gotten the will to pass this bill now.

10:09:19

REHMAmb. Kaskarelis, there are demonstrations in the streets of Athens. There had been violent protests. How easily is this going to be implemented?

10:09:37

AMB. VASSILIS KASKARELISWell, as I told you last week, for over a year -- actually, for the past 15 months, the government has adopted and implemented many very tough austerity measures, and the reaction of the public was peaceful. We have had only few demonstrations in Greece until recently. And the demonstrations that we have had for the past four, five weeks on the Constitution Square were, again, peaceful.

10:10:16

AMB. VASSILIS KASKARELISLast week, some 500,000 people demonstrated without any riots or other similar events. Yesterday, the -- for the past couple of days, the problem was very specific, is that some groups of anarchists were mingled with demonstrators, and they have created this impossible situation.

10:10:47

REHMSo you don't think it's simply the people themselves?

10:10:52

KASKARELISNo, no, no, no. Absolutely not. And this is what -- it's -- I mean, it's very clear because, for the past 15 months, there was no such demonstration. And as I highlighted, is that a week ago, we have had -- and for the past four weeks, we have had some 30,000 to 500,000 people in the Constitution Square, and there was -- there were no such riots or such reactions.

10:11:25

REHMAll right. Turning to you, Antonio de Lecea. The package that the Greek parliament has adopted, will that be sufficient, in your mind, to institute these loans, this funding from various European governments that the Greek government needs to stay afloat?

10:11:54

MR. ANTONIO DE LECEAWell, the ministers of the member states agreed that they would release the tranche of the loan that is spending, conditioning -- conditioning on the approval of this package, so this concerns the existing package.

10:12:14

MR. ANTONIO DE LECEABut it was seen that the existing package that was contemplated upon the assumption that Greece would be able to go back to the markets next year, this assumption will probably -- will not prevail. And, therefore, a new program will be needed. And the new program is being discussed and probably, if the implementations start, will be agreed in the next few weeks.

10:12:45

REHMNow, Scheherazade Rehman, the vote yesterday was close. I don't know yet what the vote was today. But how does -- what does that close vote in the parliament signify?

10:13:06

PROF. SCHEHERAZADE REHMANWell, I think it signifies the enormous dilemma the Greek government and the Greek public is facing. Understand that these austerity measures, which round off to about $78 billion, $28 billion in tax cuts and -- I'm sorry, tax increases and spending cuts, and $50 billion in the privatization scheme. It's a lot of austerity. And you have to understand that this kind of austerity does not yield growth. And without growth, Greeks cannot grow.

10:13:35

PROF. SCHEHERAZADE REHMANAnd so the future is looking extremely bleak for the public. The problem is if they absolutely lose hope that there is nothing down the road for them, there is no growth, no jobs. Standard of livings are going to go down for the next 10, 15 years. Then all of a sudden a default starts to look quite nice. The question is, even if the Greeks default -- and no one wants that -- will it be enough to get them out of trouble? And the answer, really, is no.

10:14:01

REHMWhen you talk about default, isn't this what the Greek government has, at least for now, avoided?

10:14:11

REHMANAbsolutely. What they've done is they've kicked the can down the road. In fact, the European Union has kicked the can down the road. The problem is the can is getting a heck of a lot heavier. The European Union Commission and the European Union governments -- and, you know, this is a very tricky situation. There are 17 countries at the eurozone, 27 in the European Union. And to come to a consensus is difficult.

10:14:33

REHMANBut they seem to keep muddling along in a crisis which needs clear, decisive action. Last year, they assumed the Greeks would go back into the market, and most economists understood that that was never going to happen. Greece is bust. They have the classical debt problem of developing countries. They've borrowed too much, and they cannot pay it back.

10:14:55

REHMScheherazade Rehman, she is at George Washington University and professor of international finance. Do join us, 800-433-8850. Send us your email to drshow@wamu.org. Join us on Facebook or Twitter. Alan Beattie, how did Greece get to this point?

10:15:27

BEATTIEWell, I'm sure many people may disagree, but I think its fundamental mistake was joining the euro all those years ago. And quite a few economists, like myself, warned that something like this would happen. And, indeed, it has. Greece, although wages are quite low, so is productivity, so it's not a very competitive economy. It has difficulty competing with powerhouses like Germany.

10:15:46

BEATTIEOne of the problems with locking yourself into the same currency as Germany is that it then becomes very hard to compete. You have to grind down wages and prices to become competitive. Once you're in a currency, you can't do that. But the financial markets, investors appear to regard Greece as, you know, almost as creditworthy as Germany. And so they just lent to it a very low rate, and Greece borrowed and borrowed.

10:16:08

BEATTIEGreece has always had a problem collecting taxes, actually, as much as raising them. And so now they're in this awful situation that Scheherazade absolutely correctly said. This looks like a classic kind of developing country debt problem, except it's even worse, which is normally in this state. As Argentina has done in the past, you can devalue and you can -- your currency and you can get competitiveness back. And that is one thing without leaving the euro that Greeks cannot do.

10:16:36

REHMBut, Antonio, has Greece done enough here? The E.U. has been pushing and pushing for Greece to adopt these austerity measures. To what extent -- do you believe they've gone far enough?

10:16:53

LECEALet me point out first that the program doesn't only concern austerity. Austerity is necessary because, as we all know, debt is reaching 150 percent and may go farther. But the important point is together with austerity is improved growth, increased growth, increased competitiveness, and the program contains both growth creation, competitiveness and austerity. And the two together may enable Greece to go out of this mess.

10:17:27

REHMBut, now, Scheherazade has said there is no growth in this program and that there will be no jobs. So how does the E.U. reconcile those?

10:17:39

LECEAI beg to disagree with Scheherazade on this point. There is growth. I mean, there is -- the measures that have been agreed are in the program, of locking up -- unlocking the protected professions, of increasing the retirement age, of improving the competitiveness and competition of the product markets. All that contributes to unleashing the growth potential that Greece has. And, therefore, it continues to grow.

10:18:24

REHMAnd we'll talk more about growth, or a lack thereof, when we come back. Antonio de Lecea is minister for economic and financial affairs at the E.U. delegation. Do join us, 800-433-8850. Send us your email to drshow@wamu.org.

10:20:03

REHMAnd welcome back. We're talking about the new austerity measures voted by the Greek Parliament yesterday, affirmed today. And we are talking with the ambassador to the U.S. from Greece, Vassilis Kaskarelis. Also, Scheherazade Rehman, she is director of the E.U. Center at George Washington University. Alan Beattie is international economy editor at the Financial Times. Antonio de Lecea is minister for economic and financial affairs at the E.U. Delegation.

10:20:51

REHMHere is the first email from Matt, a Canadian-American in Barcelona. So he says, "I have a stake in this. I'm curious how much of the new austerity measures involve immediately collecting the massive amount of unpaid taxes in Greece. It seems, to me, unfair for taxpayers in the rest of Europe to risk losing money in Greece while affluent Greeks don't pay their taxes." Mr. Ambassador.

10:21:31

KASKARELISWell, the key to the solution of the problem and the -- also, the question on growth is the change of the tax law, and, actually, the government understands this specific point. And, already, there was a public statement by the minister of finance two days ago that the first action of the government after the two votings -- yesterday and today -- will be the presentation to the submission to the parliament of a new tax law, which will tackle the issue.

10:22:20

REHMBut just to be clear, as part of this package, as I understand it, Alan Beattie -- pardon me -- there is no new tax plan included to restructure the tax code and collect those billions of dollars.

10:22:41

BEATTIEWell, I think there certainly isn't a comprehensive restructuring of the entire tax code at this point. But the issue that you put your finger on absolutely is, actually, just collecting taxes that already ought to be collected. I'm sure the ambassador is hired -- tired of hearing the swimming pool story, the famous swimming pool story where, you know, 324 swimming pools were declared in the northern suburbs of Athens. And there was supposed to be 17,000.

10:23:04

BEATTIEThen, of course, the second part of the story, then a cottage industry immediately grew up selling camouflage swimming pool covers and such that they could no longer be spotted from the air. And that, I think, is one of the difficulties with this program. It's one of the reasons that people like me are rather skeptical that it's going to work, is that it is not something that the government can just wave a magic wand from Athens and do.

10:23:29

BEATTIEIt requires an awful lot of activity on the ground. It's not about raising tax rates. It's about collecting taxes, and that's much harder.

10:23:37

REHMIndeed, didn't the opposition, Scheherazade, talk about lowering taxes as opposed to raising them or collecting them?

10:23:49

REHMANYou're absolutely right. And, again, this boils down to the issue of growth again. And I think we have a disagreement with Antonio about the issue of growth. Look, Greece grew negatively last year, minus 4.5 percent. The prognosis for this year is about the same, about minus 4.4 percent. The Europeans simply refuse to believe that Greece cannot pay this back.

10:24:17

REHMANLast year, when they gave $110 billion to Greece, they believed that the Greeks would come back into the markets. They're misreading the financial markets. The markets are very jittery, and they absolutely do not believe the Greeks will pay this back next year, the year after or even in five years. And I think, for that reason, the Greeks are going to have to pay a lot more money to borrow for the next decade, and therein lies the problem.

10:24:41

REHMANHigher borrowing costs for the government means lower tax collection, less spending. Jobs are being cut. There's an aging population, and, at the same time, pensions are being cut. This does not look like a good scenario for growth, by any means.

10:24:56

REHMAmb. Kaskarelis.

10:24:58

KASKARELISTo this point of growth, I would like to add that there are rumors coming from Europe that the Ecofin next -- the Ecofin meeting, the minister of finance next Sunday, among other things, will decide to free, in a way, of capitals earmarked for Greece. The amount is 30 billion euros for it to be spent on growth, on development, on infrastructure, on specific projects. So this will give a boost to the economy.

10:25:44

KASKARELISBut in parallel, if the government managed, with the new tax law, to collect taxes, and you have to keep at the back of your mind that there are some -- just to give you a characteristic example, there are some 35,000 tax cases, let's say, audited already in the ministry of finance and ready for collection. And the amount is 60 billion euros. I mean, we are talking about a lot of money.

10:26:20

KASKARELISIf the government manages to collect even half of this money, plus the 30 billion earmarked for Greece for projects, this will change a lot the picture.

10:26:33

REHMScheherazade.

10:26:34

REHMANI think there are a lot of ifs here. And I think until market credibility has come back for the market to hold Greek bonds, this is not over by a long shot.

10:26:44

REHMAlan Beattie, how could this deal with Greece and the E.U., if it does not go as well as projected, how might it affect other European countries?

10:27:03

BEATTIEWell, there are a couple of channels by which it might transmit. I mean, one is that if Greece does end up defaulting and defaulting in a chaotic way, not planning it but just stopping paying the money on the -- on their debt, then that would directly affect a lot of banks in Continental Europe -- French and German banks in particular. And this is, one might cynically say, one of the reasons why the eurozone has been so keen to keep money going to Greece, is to protect their own banks. So there will certainly be an effect there.

10:27:33

BEATTIENow, the unknowable thing is whether there will be a sort of contagion effect on other countries that have been in trouble, such as Portugal and Ireland, which are receiving big I.M.F. loans. Those situations are not quite the same. They're not exactly the same. Those are moral issues to do with their banking system and having had to take the banking system under the wing of the state 'cause it wants it functioning.

10:27:54

BEATTIESo they're not quite kind of expensive problems. So they're not quite the same. But you know something? In a panic -- and we learned this in the Asian crisis, and we learned this in the global financial crisis -- in a panic, investors will just flee. They don't draw proper distinctions. They just go.

10:28:09

REHMScheherazade.

10:28:10

REHMANI think you're absolutely right. In a panic, can't tell the difference between Greece, Spain, Ireland. The danger is this: Can we tell the difference between Spain and Italy? And I think that -- and with all due respect to the ambassador -- Greece is a very small economy in the eurozone. It's about 2 percent of the GDP of the eurozone. And it's not about that. I'll give one more example where this money is not that large in the scheme of the global financial crisis.

10:28:37

REHMANGreece owes about $340 billion. Well, Lehman Brothers, when its demise happened, owed over $600 billion on its books. So let's keep this in perspective. The threat really is, what Alan just mentioned, is contagion. And we are worried about the larger European eurozone countries. Ireland, Portugal, Greece is manageable. Spain, you're going to have a really rough time. The real key here is will it ever spill over into Italy? Italy owes about $1.8 trillion in debt, of which about 47 percent is held by foreigners.

10:29:14

REHMAntonio de Lecea, do you see the threat of default on the part of Greece in the same way? And do you see the results in the same way, should that happen?

10:29:32

LECEAIndeed, in a situation of panic, one cannot foresee what the results can be. And that -- but, clearly, we have learned the lessons from the previous panic. And this is why we are trying to contain the risk, both by instilling on the Greek government the need for, I mean, adjusting themselves, and, indeed, on the European side, to complete the backstop mechanisms, to bring more clarity into the situation to what the situation of the banks is so as to avoid this panic to spread.

10:30:15

LECEASo in the most unlikely situation where a default could occur, what we try is to precisely avoid this panic.

10:30:28

REHMInteresting. I want to go back to a comment Alan Beattie made at the start of the program, which was, as I recall, Alan, that Greece made a mistake in becoming part of the eurozone. Do you believe that?

10:30:48

BEATTIEYes, absolutely. I personally was skeptical of the entire euro project, and I thought, in particular, that the countries on the periphery of Europe, exactly like Greece and Spain and Portugal, were not suitable members. So I think that was one of the founding mistakes.

10:31:02

REHMAnd, Mr. Ambassador, how do you see that, as a mistake or otherwise?

10:31:08

KASKARELISI believe not. It wasn't a mistake. And we have all to keep in mind how European Union is working. I mean, it took many years to arrive at the decision to introduce the euro. We have introduced the euro some 10 years ago, and it took us -- I mean, the European partners -- another 10 years and a global financial crisis to start taking decisions on the mechanism to support the euro. So this is the weak point of the equation.

10:31:46

KASKARELISI mean, in Europe, we have bright ideas. We introduce the ideas. But it takes a long time to elaborate on these ideas and start constructing, if you like, a safety net and the necessary measure -- mechanisms and regulations in order to support these ideas. The same happened with what is called the Constitutional Treaty. It took us five years, six years of long discussions in Brussels in order to arrive at the point to have the referendums in France, in the Netherlands, as you remember, for the Constitutional Treaty.

10:32:33

KASKARELISThe referendums -- the outcome of the referendums was negative. And at the time, all the headlines around the globe were saying, Europe is dead, Europe is collapsing, Europe is falling apart. Five years later, Europe is there, is strong and continues to deliver.

10:32:53

REHMScheherazade Rehman.

10:32:54

REHMANI think that is the trillion euro question is, you know, should Greece have joined when it did? Look, the Greeks joined, and there was a political momentum at that time. And the ball moved forward. This was a phenomenal chance for the Greeks to really get their house in order, to come up, be fiscally disciplined and play what we call the big boys club. Unfortunately, they ended up having an extended party for which the bill was not fully disclosed until quite later, seven years later.

10:33:28

REHMANAnd like the ambassador rightly pointed out, the eurozone agreement is a legal entity. You can't simply step in and step out at will. And so it's somewhat akin to a Catholic marriage. There is no divorce. But, now, the rest of the members who have signed this legally have to pay the bill as does the rest of the world.

10:33:49

REHMScheherazade Rehman at George Washington University. And you're listening to "The Diane Rehm Show." We'll open the phones now, 800-433-8850. First to Richard, who's in Boston, Mass. Good morning. Richard, are you there?

10:34:15

RICHARDOh, I am there. Thank you, Diane. Good morning.

10:34:17

REHMGood morning.

10:34:18

RICHARDI have a question. It seems like, in simple terms, that Greece is like somebody who makes $50,000 a year and borrowed $7 million. They can never pay it back. I don't care what they talk of. They don't have the growth. They don't have the infrastructure. They don't have the technology. And the real question I have is -- excuse me -- since the U.S. banks have insured the banks of -- in the eurozone against this debt, if they do -- and it seems like they are going to default on this, whether they want to believe it or not, how will it affect the U.S. banks?

10:34:54

REHMAlan Beattie.

10:34:55

BEATTIEThe fact -- it's actually not that big. These issues are slightly murky and opaque because the data aren't particularly brilliant. But the insurance -- this is the infamous credit to default swaps, which caused so much trouble during the financial crisis -- are actually fairly small in relation to the stock of outstanding debt in Greece. So the U.S. seems fairly confident.

10:35:16

BEATTIEAnd, you know, I broadly back their view that the direct impact on American banks and the American financial system, simply from a default or a restructuring, is not going to be that big. More of a concern would be if there were just a kind of worldwide panic in financial markets in general.

10:35:31

REHMScheherazade.

10:35:33

REHMANI think that Alan's right, but I think we also have to remember that U.S. money market funds are heavily involved with big banks in Europe. We have about a trillion dollar exposure to the big banks, which is Deutsche Bank, Bank Paribas, Barclays Bank. And that's where we will probably have a reverberation if something happens in Europe, not to mention the Dow Jones is jumping up and down 2- or 300 points every time there is riots on the streets.

10:36:02

REHMTo Boca Raton, Fla. Good morning, Steven.

10:36:07

STEVENGood morning. If the concern about a Greek default is the effect it'll have on European banks and any, you know, ensuing contagion after that, why doesn't the E.U. just guarantee the banks? Rather than trying to prop up the Greek economy, let Greece restructure, and let private investors take a hit.

10:36:31

REHMAntonio.

10:36:35

LECEAThe reason is that we want to go to the root of the problem rather than to the symptoms. And the best solution for that is to really, I mean, put the house in order in Greece, to restore growth in Greece and certainly to, at the same time, to repair and put the European banking system also in fully satisfactory position.

10:37:03

REHMBut suppose Greece cannot pay back its full debt. Then what happens?

10:37:11

LECEAThen, I mean, the backstop mechanisms are in place. But let me go back. I mean, the -- our assumption that we believe is well-grounded, is that Greece would be in the position to pay the debt back.

10:37:26

REHMAntonio De Lecea, he is minister for economic and financial affairs at the E.U. delegation. Short break. More of your calls, your thoughts when we come back.

10:40:04

REHMAnd welcome back. As we talk about the Greek debt crisis, the votes by the E.U. -- sorry, the Greek Parliament, both yesterday and today, and moving forward. Let's go now to Julia in Dallas, Texas. Good morning to you.

10:40:26

JULIAGood morning. My question is -- I read an article by Arianna Huffington yesterday. And she said that the real reason for the protest is not so much the austerity measures, but the cronyism and corruption in the government and the fact that this is the third Papandreou to be prime minister, and the fact that those people screwed it up and the rich people are not paying for the messes that they made, and then also that the Germans are asking for collateral like the island of Crete and the Parthenon. And they don't want to see their country being given up bit by bit to the Germans.

10:41:02

REHMMr. Ambassador.

10:41:04

KASKARELISI suppose the American expression is, please, give me a break. Nobody is asking for Crete or the Parthenon or Greek islands.

10:41:14

REHMHowever.

10:41:15

KASKARELISTo -- however, to be serious -- and I fully accept the comment of your listener. One of the main problems in Greece is corruption. This is directly linked also to tax evasion. And one of the promises of this government is that at this second phase, they will tackle these issues. I believe that it's of paramount importance to have some people involved in corruption during the last years sent to jail.

10:41:58

KASKARELISThis will change totally the picture of the politicians, of the businessmen in Greece and will send the right and positive message to Greek people who participate, suffering from the austerity measures to this effort.

10:42:20

REHMScheherazade, that is a big job, a big task to get rid of corruption. How successful do you believe this government can be?

10:42:36

REHMANI think that this is going to take a long time. I don't believe that this government can eradicate or at least decrease corruption to a point where Greece looks a little different than it has in the past. You know, corruption is everywhere, and that's regrettable. But corruption in Greece is quite systemic. It goes from all the way from the top and well into the middle class, and so I think that's a little bit harder to get rid of.

10:42:58

REHMANAnd the poor people in Greece or the ones that are less well-off are right. You know, they are worried that the rich will get away with this and that the banks will get away with this, and they'll end up paying the price in their pensions and their taxes.

10:43:11

REHMAnd how likely do you believe that is?

10:43:14

REHMANIt's -- there's a element of truth to that, but we mustn't forget that almost 70 percent of the population is also employed by the public sector where they've had the benefits of the last seven, eight years of quite a good life.

10:43:27

REHMAllan Beattie.

10:43:28

BEATTIEI think this a serious problem and, I think, countries that have gotten to difficulties before have had similar issues and that you often have quite a deep-seated political culture. I made the comparison with Argentina before. And there was a lot of anger when Argentina defaulted back in 2001 that, essentially, you had had quite a similar kind of clique of people, or from the same political background, continually running the country and continually making the same kind of mistakes.

10:43:57

BEATTIEThe problem with it is that you can't just click your fingers and import the whole political culture from outside. And often, I think, they're the kind of the technocratically very good people, the very smart people and, frankly, the people who the outside world likes dealing with, right? So the International Monetary Fund, they can always find someone in the government or kicking around the government who has a PhD in economics, usually from MIT or Harvard, and is very much their kind of person.

10:44:21

BEATTIEUnfortunately, that person often can't actually get votes to the parliament or can't swing the Cabinet or can't do what else needs to be done because they don't have the political clout.

10:44:30

REHMAll right. To Houston, Texas. Good morning, Tony. You are on the air. Tony, are you there? I guess not. To Louisville, Ky. James, good morning.

10:44:49

JAMESHello?

10:44:49

REHMYes. Go right ahead, sir.

10:44:51

JAMESYeah, hi. I think that the gentleman's statement was correct earlier, that Greece should not have joined, but don't think Portugal or Ireland either for that matter. I mean, you have countries that have, what -- those three are combined GDPs of, like, 6 percent of the entire loan package that went to all of those countries. So -- and, I think, the I.M.F., you know, it doesn't warrant such a grand loan. I think it -- you know, they're charging interest, which is what these countries can't afford to pay back.

10:45:13

JAMESAnd I think that, you know, they should restructure the loan somehow so that, you know, if they want this to really fly without being such a bitter pill to swallow, to try to avoid the people, restructure the loan and tie it to a GDP. And if it's (unintelligible) GDP, it just gets pushed off. And I think the other thing that you have to do is you also have to, you know, take the currency out of circulation if you're really hoping that the euro is kind of stiff. You know, the currency is still floating around there.

10:45:40

REHMOkay. What about restructuring that loan, Antonio?

10:45:48

LECEAThe restructuring of the loan has been discussed, but the -- what the E.U. is now proposing is that, rather than restructuring, there may be some type of private sector involvement through voluntary rolling over of debts which will provide the financing or proof, will provide the continuation of financing. But this is far from reducing the value of the debt.

10:46:23

REHMHow likely is that, Scheherazade?

10:46:26

REHMANWell, I mean, the Europeans are pushing very hard for that. And, again, the Germans don't like this plan. They had been strong-armed into this plan. They believe that everyone should bear some pain if they're going to get out of this, and that includes a haircut by the private banks and the private investors, that they do take part of the burden of the Greeks for this. And, you know, don't forget, it's not just the Europeans paying for this.

10:46:51

REHMANThe I.M.F. has $250 billion committed to bailing these countries out, and I.M.F. money is money from taxpayers from all around the world. We're all paying for this, and so...

10:47:01

REHMAll right. To Ann Arbor, Mich. Good morning, Glenn.

10:47:06

GLENNHi. I just called in to find out if anyone on your panel has read the book by Naomi Klein, K-L-E-I-N, called the "Shock Doctrine." She talks about the I.M.F. and what they did in South America back in the 1970s, which was very detrimental to the South American people, including flooding countries with cheap imports, throwing people out of work, massive unemployment, selling off the public trust into private hands at pennies on the dollar, which is another giveaway to the rich.

10:47:34

GLENNAnd while they're doing this and destroying the economics of the country of the poor -- mostly the poor -- they start cutting the social safety net. I'm wondering if anyone is familiar with these points.

10:47:44

REHMAlan Beattie.

10:47:45

BEATTIEI have indeed. I don't find it very convincing. You know, there was this phenomenon people observed in medieval Russia where the local Russian peasants used to note the correlation between the presence of doctors in any given village and the prevalence of plague in that village. And the way they dealt with this was, of course, by killing the doctors. And I think it's very much similar with the I.M.F. The reason I.M.F. goes into countries is not for a joke.

10:48:07

BEATTIEThey go in because those countries are bankrupt. And those countries do not have to take I.M.F. loans if they don't want to. They choose to do so because, painful though it is, it's better to have very cheap lending, which is what the I.M.F. gives you, than to have no lending at all. You know, a lot of those adjustments were very painful. It's certainly true. I think the I.M.F. is quite crude in the way they did it.

10:48:26

BEATTIEThey often said to countries, you just got to cut spending, and they were careless about the way it should be done, you know? But I certainly don't think it's true that this was a -- you know, this was a kind cunning deliberate plan by the forces of international capital to impoverish further developing countries. I think that's edging into the realms of conspiracy theory.

10:48:45

REHMAnd the AP is reporting that Portugal's prime minister has announced a new batch of austerity measures, including an additional tax on private income this year as that country struggles to break free, free of its ruin, its burden. Amb. Kaskarelis, last year's emergency program was intended to restore confidence of private investors and allow Greece to start borrowing money again. Why didn't that happen?

10:49:26

KASKARELISWell, it didn't happen for a simple reason, that, last April, after the agreement that Greece had with its partners, European partners, the government started implementing the c'est mon jour, the memorandum of understanding, the agreement of which provided for the adoption in the implementation of very tough austerity measures. And the government delivered during the second half of 2010 on these specific measures.

10:50:03

KASKARELISThe parliament has adopted laws. And according to these laws, the government has started cutting wages by 20 to 30 percent, pensions by 20 percent. They have increased the retirement age. They have decreased by 70 percent the numbers of new municipalities in order to reduce the public spending. At the same time and in parallel, the government should have introduced some measures regarding the investments and privatizations.

10:50:52

KASKARELISBut we have arrived at that point, that public opinion was -- and it was something to expect -- extremely tired by this implementation of the tough measures. So there was a kind of break, let's say, during the first months of 2011. And, now, we have entered, after the voting, just this voting, the today's voting at the parliament, at the new phase.

10:51:21

KASKARELISAnd in the framework of this new phase, the government has already announced that we'll present a new law for investments, a new law for the amelioration of the tax system and so on.

10:51:38

REHMScheherazade.

10:51:39

REHMANWell, I think the Greeks didn't go back to the market to borrow more from the private capital markets, quite frankly, because they couldn't. The market simply didn't believe the Greeks could pay this back, that they don't have the money. So the question is, why should they lend? And if they do lend, then lend at a much higher interest rate. Don't forget the -- and like the ambassador mentioned, the austerity programs are quite tough. If there is no growth coming down the road, we are scared to lend.

10:52:05

REHMAnd what about the I.M.F.'s new chief Christine Lagarde, Alan Beattie? How much influence might she have over the amount of money and the kinds of conditions that Greece must adhere to?

10:52:27

BEATTIEShe might have quite a lot. And this is very interesting in that she was only appointed earlier this week, and now she's already going to take up her position next week. So she is going to be right in the middle of these decisions. You know, the I.M.F. has to take her decisions, and she -- whether it's going to carry on supporting Greece, and that's based on whether they think the Greek program is credible.

10:52:49

BEATTIEBut, also, whether they think the financing that comes in from the rest of the eurozone is going to be there as well, those are difficult questions. They're questions of judgment. They're not just technical questions.

10:52:58

REHMHow tough will she be?

10:53:01

BEATTIEThis is the great unknowable. And people tend to think she'll go to one or two directions, either because she's French and because she has interest to the French banks, and because she had the interest of the eurozone, she won't be very tough at all. On the other hand, it was obviously Richard Nixon who went to China, right? If you want someone to come in and be really tough, it might be someone who's desperate to prove that they're not in the pockets of their own banks.

10:53:25

REHMAnd you're listening to "The Diane Rehm Show." Finally, let's take a call here in Clearwater, Fla. Good morning, Louise.

10:53:38

LOUISEHi, Diane, my comment is this. And I'm not crazy, right-wing person or a fundamentalist. But it seems to me that with the world economy is sort of heading into the tank and all of the problems we have with energy and health problems and just banking crisis in general, why can't the I.M.F. or whoever who could do it have a world bank holiday? You know, everybody go back to nobody owes anybody anything.

10:54:04

LOUISEWe start over. And the rich countries will still be rich. The poor countries will still be poor. But there won't be these heavy so-called debts hanging over everyone. And people can work their way out of it, sort of like, you know, sort of a crisis management thing but, you know, a one time thing.

10:54:24

REHMANScheherazade, how realistic?

10:54:27

REHMANIt's not. I mean, the United States owes $14 billion in debt. Sure, we'd like to see it go away, but it's not possible.

10:54:35

REHMIs what's happening here in the United States akin to what's happening in Greece, Alan?

10:54:45

BEATTIEThe U.S. has a couple of enormous advantages. It borrows not just in its own currency, which Greece kind of does, but it has control over that currency in the sense that Greece does not control the Euro. The U.S., except if you take one or two technical grounds, has not defaulted on its federal debt. It is an extremely credit-worthy borrower. One of the interesting things I find at the moment is that the debate in Congress is kind of odd because there's perpetual threats being, you know, conjured up that the market is about to stop funding the U.S. government.

10:55:15

BEATTIEIn fact, the U.S. government can borrow extraordinarily cheaply, you know, at historic lows. It did strike me that one way of solving the Greek and the U.S. problems would be get the congressional Republicans and the Greek public sector unions, right, to switch sides. So then you'd have people who are keen on austerity in a country that needed austerity, and then you'd have people keen on keeping spending, going into a country that needs to keep spending going.

10:55:36

REHMDmitri is on the line. He lives here in Washington. He identifies himself as a Greek American. He wants to ask you, Mr. Ambassador, about what we here -- and I presume he means Greek Americans -- can do to help Greece?

10:55:57

KASKARELISWhat Greek Americans can do -- and they have on several occasions had the opportunity to explain that to them -- is they have to work within their communities and within the U.S. to explain the situation in Greece in a realistic way to try to send the message to everybody that Greece is doing a huge effort -- it's a Herculean task -- to change totally the picture of the economy.

10:56:37

KASKARELISBut even the way that people in Greece were doing business up to now, that we are serious, we want to deliver, and we are going to deliver.

10:56:50

REHMThe Greek ambassador to the United States Vassilis Kaskarelis, Scheherazade Rehman at George Washington University, Alan Beattie of The Financial Times, Antonio de Lecea, minister for economic and financial affairs at the E.U. Delegation, thank you all so much. And thanks for listening. I'm Diane Rehm.

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